UK Finance, a prominent banking and finance trade association based in the United Kingdom, has announced the commencement of an experimental phase focusing on the country's Regulated Liability Network (RLN). This initiative involves eleven member organizations, including major players such as Barclays, Citi, HSBC, Lloyds Banking Group, Mastercard, NatWest, Nationwide, Santander, Standard Chartered, Virgin Money, and Visa.

The Regulated Liability Network

The RLN, introduced in November 2022, is a groundbreaking concept that places assets and liabilities on the same distributed ledger, with a focus on fostering interoperability between regulated forms of money using blockchain technology. By leveraging this innovative approach, the RLN aims to unlock new features and benefits for customers' money across a wide range of retail and wholesale use cases.

Peter Left, the head of digital and markets innovation at Lloyds Banking Group, highlighted the commercial potential of the RLN, stating: "As a commercially led approach, RLN can unlock new features for customers' money across a range of retail and wholesale use cases."

Experimental Use Cases

The experimentation phase will delve into three distinct use cases, each designed to explore the technical and legal aspects of the RLN, as well as the potential customer benefits it can offer.

Payment-upon-Delivery for Physical Products: This use case will examine the RLN's potential to reduce fraud in online transactions involving physical products by facilitating payment upon delivery.
Homebuying Process Transparency: The second use case will focus on improving customer transparency in the homebuying process, with the aim of reducing conveyance fraud – the practice of selling an asset to avoid paying a claim by a creditor.
Digital Bond Settlement: The final use case will explore the application of digital money in the settlement of digital bonds, potentially streamlining and enhancing the efficiency of these financial transactions.

Alignment with Project Rosalind

The experiments conducted by UK Finance will align with Project Rosalind, a joint effort between the Bank for International Settlements (BIS) and the Bank of England. Project Rosalind, which concluded in June, studied the use of application programming interfaces (APIs) in banks' interactions with central bank digital currencies (CBDCs).

The functionality of the U.K. RLN will be examined in a technical sandbox, providing a controlled environment for testing and experimentation.

Collaboration and Transparency

UK Finance's approach to the RLN experimentation phase emphasizes collaboration and transparency. By involving eleven member organizations representing various sectors within the banking and finance industry, the trade association aims to gather diverse perspectives and insights, ensuring a comprehensive exploration of the RLN's potential.

Furthermore, UK Finance has expressed its intention to publish the results of the experimentation this summer, fostering an open dialogue and sharing valuable insights with the broader financial community.

Building on Previous Discoveries

The current experimental phase builds upon the findings of UK Finance's previous discovery-phase RLN experimentation, the results of which were released in September. By leveraging the knowledge gained from these prior explorations, the trade association aims to deepen its understanding of the RLN's capabilities and potential applications.

Global Context and Significance

The UK's exploration of the RLN comes amidst a broader global interest in the intersection of blockchain technology and central bank digital currencies (CBDCs). In July, the Federal Reserve Bank of New York Innovation Center, the SWIFT global messaging service, and nine large financial institutions, including Citi, HSBC, and Mastercard, completed a proof-of-concept to exchange and settle commercial bank deposit tokens and central bank liabilities using a simulated United States CBDC.

The participation of these global financial giants in both the UK RLN experimentation and the U.S. CBDC proof-of-concept underscores the significance of these initiatives and the potential they hold for shaping the future of digital finance.

Conclusion

UK Finance's experimental phase focusing on the Regulated Liability Network represents a significant step towards exploring the potential of blockchain technology in enhancing financial transactions and fostering greater transparency and efficiency within the banking sector.

By collaborating with major industry players and aligning with global efforts such as Project Rosalind, UK Finance is positioning itself at the forefront of innovation, paving the way for the seamless integration of cutting-edge technologies into the financial services landscape.

As the experimentation progresses, the insights gained will undoubtedly contribute to a deeper understanding of the RLN's capabilities and inform future developments in the realm of digital finance, both within the UK and on a global scale.